Suppose Banks Hold No Excess Reserves,the Reserve Requirement Is 10%,and

question 6

Essay

Suppose banks hold no excess reserves,the reserve requirement is 10%,and the cash-to-deposit ratio is 10%.
(a)If banks have $10 million in reserves what will the money supply be?
(b)How will your answer to (a)change if the Fed increases the reserve requirement to 20%?

Recognize the significance of opportunity cost in economic decision-making.

Understand the implications of correlations and causations among economic variables.

Grasp the application of economic theory to historical events and real-world situations.

Understand the role and mechanism of the circular flow diagram in economics.

---

Definitions:

Real Defense

A defense in law that allows a promissory note or negotiable instrument to be invalidated based on factors like fraud or forgery.

Holder in Due Course

A legal term describing someone who has acquired a negotiable instrument (like a check) in good faith and without knowledge of any defects.

Gambling

The act of wagering money or valuables on the outcome of a game or event with an uncertain result, with the primary intent of winning additional money or goods.

Real Defense

A legal defense that is valid against all the world, including bona fide purchasers or holders in due course.